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Patience is a Virtue for Fund Managers & Investors

Patience appears to be the one common trait that most successful managers share

Morningstar Manager Analysts 25 September, 2012 | 7:00AM
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At about the same time Angus Tulloch was launching what was then the Stewart Ivory Asia Pacific fund, Axl Rose was wailing  “All we need is just a little patience, patience, ooh yeah” on Guns N’ Roses’ Lies album.

Investing and rock! Who’d have thought he was inadvertently telling a new generation of investors that they should exercise patience when making their investments?! The year was 1988 and Thatcher’s owner occupied, share holding vision was well underway.

One of the characteristics of the fund managers honoured at the fifth Morningstar OBSR “Honours for Excellence in Investment” dinner earlier this month was they have been around for a long time, and anyone who had invested in their funds all those years ago and had patience would have made serious gains.

In a world that increasingly seems to believe that index funds and ETFs are the way forward, it is pleasing and reassuring to see that good active managers are consistently able to deliver returns way ahead of broader market indices. It was reassuring that the shortlist for the Outstanding Investor award, which recognises fund managers who have been running their funds successfully for over 10 years, was the longest yet.

The common thread among all of the short-listed managers is their belief in their ability to pick stocks, their conviction in their investment approaches, their willingness to go against the crowd and market, the support of their employers, their ability to flex their conviction, their understanding of risk and above all, their loyalty to their clients. Throw in a liberal dose of patience and investors have reaped the rewards.

The First State Asia Pacific fund returned a whopping 2,646% to investors from launch to 1 September 2012. Or, put another way, an annualised return of almost 15%, which equates to a doubling of one’s investment every 5 years! That is some reward for exercising patience. It is no surprise that the business that grew from this was awarded the Outstanding Investment House honour, being recognised for being a brilliant specialist in its field.

Winners of the Outstanding Investor honour Harry Nimmo and Richard Pease had both started on their investment careers by the end of the 1980s, but it wasn’t until later that they launched the funds which enabled them to enrich their unit-holders – Harry Nimmo in 1997 with his Standard Life UK Smaller Companies fund and Richard Pease firstly in 1990 with the Jupiter European fund and then in 2001 with New Star European Growth, which subsequently became the Henderson European Growth fund, following their acquisition of the Group.

Not only have these winners delivered outstanding returns to investors, but they have also retained a focus on and dialogue with their investors. Communication with clients is of paramount importance in both good times and bad. In particular, Richard Buxton, the winner of the Outstanding Contribution to the Industry honour and manager of the Schroder UK Alpha Plus fund, has demonstrated time and again his willingness to communicate his thoughts and actions to investors. This has engendered a loyal client base that has benefited from the outstanding returns he has delivered. They have not fallen folly to the travails of trying unsuccessfully to market time their investments.

In a world where there is increasing pressure on managers to deliver returns after fees that are ahead of their relevant indices, and investors are faced with a plethora of low cost alternatives in the form of index funds and ETFs, it is pleasing to see that excellence in fund management does still prevail. As Aristotle summarised perfectly: “We are what we repeatedly do. Excellence then, is not an act, but a habit. “

The original version of this article was published in Investment Adviser, which is part of the Financial Times Group.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
ASI UK Smaller Companies R Acc1,140.04 GBP-0.61Rating
Janus Henderson European Gr A Acc285.31 GBP-0.42Rating
Jupiter European L Inc3,170.64 GBP-1.05Rating
Schroder UK Alpha Plus Acc2.44 GBP0.00Rating
Stewart Inv APAC and Jpn Sstby A GBP Acc16.28 GBP-1.57

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Morningstar Manager Analysts

Morningstar Manager Analysts  research and rate hundreds of OEICs, unit trusts and investment trusts available for sale in the UK.